Baghdad hits Erbil with new financial restrictions

Iraq’s central bank ordered private banks to close their branches in the Kurdistan region.

Rising hardships. A man counts money at the Erbil Stock Exchange, on October 4. (Reuters)

2017/11/12 Issue: 131 Page: 19

London - Iraq’s central government in Baghdad moved to impose financial restrictions on the Kurdistan Regional Gov­ernment (KRG) in Erbil to strengthen its authority across the country.

Iraq’s central bank ordered pri­vate banks to close branches in the Kurdistan region to avoid a ban on dollar sales, Iraqi banking sources told Reuters. All banks must con­firm they have closed their branch­es to avoid penalties, the sources said.

Iraqi banking sources said the measures were intended to control the flow of hard currency to the Kurdish region.

Central bank sources said a deci­sion in October to stop selling dol­lars to four leading Kurdish banks was still in effect.

A preliminary draft of the 2018 federal budget seen by Reuters and confirmed by three lawmak­ers and two Iraqi government offi­cials showed the Kurdistan region’s share of the 2018 budget trimmed to 12.6%, down from the 17% the re­gion has traditionally been entitled to since the fall of Saddam Hussein in 2003.

The 12.6% figure was “very accu­rate,” said a government financial adviser on condition of anonym­ity. The adviser said it was based on population data from the Trade Ministry’s ration card programme.

Iraq’s central government and the Kurdish autonomous region have quarrelled over money repeat­edly since Saddam’s fall.

The post-Saddam constitution put in place a system guarantee­ing the Kurds’ self-rule with a share of overall revenue proportionate to their share of the population. For the past three years, Baghdad stopped sending funds while the Kurds held nearly all of northern Iraq’s oil infrastructure and sold enough crude to fund themselves.

The Iraqi government’s lightning advance on October 16 that recap­tured oil-producing territory from the Kurds means the autonomous region is once again dependent on Baghdad for funds. The central gov­ernment demanded a halt to inde­pendent Kurdish oil sales.

The reduced budget would dra­matically add to the KRG’s financial difficulties.

Another proposal in the draft budget would see the central gov­ernment distribute the Kurdish re­gion’s share of the federal budget to the three provinces that make up the region individually, further undermining KRG control over the allocation of funds.

“It’s a dangerous sign that indi­cates that Baghdad is seeking to un­dermine the political and economic system in Kurdistan region by cut­ting the budget share and deal­ing directly with the provinces,” Ahmed Hama Rasheed, a Kurd and the secretary of the financial com­mittee in the federal parliament, told Reuters.

Kurdish officials criticised the proposals, accusing Iraqi Prime Minister Haider al-Abadi of using the budget to punish the Kurds, who overwhelmingly voted in Septem­ber to break away from Iraq in a ref­erendum Baghdad considers illegal.

KRG Prime Minister Nechirvan Barzani, the nephew of Masoud Bar­zani, who stepped down as Kurdish president after the referendum cri­sis, said the KRG was “prepared to give them the oil revenue” — appar­ently an offer to negotiate over its own sales of oil — if the central gov­ernment was prepared to give the Kurds their customary 17% share.

The proposed 2018 federal budg­et must be approved by Abadi and referred to parliament to vote on it.

Iraq’s Supreme Federal Court has ruled that no region or province can secede, strengthening the govern­ment’s hand as it seeks to prevent a repeat of September’s referendum vote.

The court is responsible for set­tling disputes between Iraq’s cen­tral government and the country’s regions and provinces, including Kurdistan. Its decisions are final and mandatory for all parties. However, it has no mechanism to enforce its ruling in the Kurdish region.

Abadi urged the KRG to abide by the court’s decision. “We call on the region to clearly state its com­mitment to non-separation or in­dependence from Iraq,” he said in a statement.

The ruling would strengthen Ab­adi’s hand in future dealings with the Kurds, Ahmed Younis, a Bagh­dad-based constitutional expert, told Reuters.

Abadi said the government was “taking the necessary measures to impose federal authorities.” Bagh­dad was committed to “preserving Iraq’s unity and preventing any at­tempt for separation,” he added.

Baghdad has imposed a ban on direct international flights to and from the Kurdish region.

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